FILE PHOTO: The International Commercial Bank in Rason (Daily NK)

North Korea is restraining regional commercial banks from setting high rates of interest, Daily NK has learned. 

A Daily NK source in Pyongyang said Tuesday that the Cabinet issued “guidance” on Apr. 9 laying out the direction provincial commercial banks should follow in establishing and amending their financial plans.

According to the source, the Cabinet’s first quarter financial review revealed that regional commercial banks were excessively or inconsistently setting interest rates on deposits and savings to “guarantee” — that is, replenish — funds. The guidance letter called for a firm “launchpad” for establishing a proper management system for state banks.

The source said people “hold many opinions” because local commercial banks raise and lower their interest rates, and are often at odds with one another. He said the Cabinet blamed inconsistent interest rate policies on the part of local commercial banks for generating public insecurity and creating great inconvenience in the financial life of the people.

The source said the Cabinet is calling on provincial commercial banks to follow a “centralized economic and financial system” under the unitary command of the Cabinet, departing from the last decade’s “self-reliant” management style. Banks must now receive Cabinet approval of their interest rates.

This means the Cabinet criticized regional commercial banks for generating “dangerous effects” by going in a different direction from the unitary economic management system. On a related note, the source said the managers of commercial banks in three districts of Pyongyang were busted early this month for “unbalanced bank management” and have been undergoing investigation by prosecutors.

In fact, local commercial banks have been haphazardly playing with interest rates, with each bank setting rates high to soak up the public’s idle money. When it comes time to pay up, they do so with money from state institutions, or by extending the deposit and savings periods or paying out the interest, not the principal.

The Cabinet has responded by deciding to put interest rates — previously determined autonomously by regional commercial banks — under unitary state management, and to make banks that set interest rates above a state-determined limit assume “legal responsibility.” This suggests that for all intents and purposes, the Cabinet will control regional commercial banks that have been disturbing economic order with hopelessly excessive interest rates.

However, regional commercial banks say that without high interest rates – the best way to curry favor with potential customers – they have nothing to sway people to use their services. They speculate that if they lower interest rates, local residents who are deeply distrustful of financial institutions will not entrust their local or foreign currency with regional commercial banks.

Many North Koreans reportedly say that while they can enjoy “advanced” services such as electronic payment cards or bank transfers if they leave their cash with banks, they have little interest in commercial banks beyond their high interest rates because party and state investigative bodies can sift through private financial information at the financial institutions.

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